Lenawee County surplus not enough

Tuesday

State government accounting maneuvers still have the county facing budget problems.

Last year’s budget surplus is larger than expected, but not enough to brighten a gloomy outlook for Lenawee County government’s financial future.

That is the assessment of Lenawee County administrator Bill Bacon after reviewing an audit report for 2006 showing a fourth annual surplus in a row. Accounting maneuvers by the state government have counties on a track toward the type of financial crises the Legislature and governor are wrestling with in Lansing, he said.

“The state seems to be bound and intent on making every unit of government as poverty stricken as they are,” Bacon said. “I’m hoping this audit isn’t the last good one we have.”

Another $710,654 was added to Lenawee County’s general fund reserves last year, raising the total to nearly $8.5 million. The surplus was more than $200,000 larger than projected, mostly due to technical accounting issues involving what year to credit some grant funds and year-end payroll expenses, Bacon said.

County commission chairman Jim Van Doren, R-Tipton, thanked county employees for helping keep the budget in the black. The audit report by Jackson-based Rehmann Robson of Jackson noted that county spending increased less than 2 percent last year. Property taxes and interest earnings increased enough to cover costs and put money in the treasury at the end of the year.

“We’re very fortunate to have employees who keep us in this condition,” Van Doren said.

General fund reserves plus cash in several other major accounts add up to nearly $26 million the county has put away for the future.

The question is whether it will last long enough to see Michigan’s economy and state government finances recover, Bacon said.

A large portion of the combined reserves is a $9.8 million replacement fund for state revenue sharing. Lansing stopped paying counties their share of state sales taxes in 2003 and mandated a shift in county property tax collections that created the replacement fund by collecting an extra one-third share of county millages for three years.

The tax shift was completed this year and the revenue-sharing replacement fund will now see money go in only one direction until it runs dry.

Artificial reserves were built up in the last few years by the accounting scheme, Bacon said.

“Now we’re at the peak and heading down the other side of the mountain,” he said.

A $1.8 million transfer to the general fund this year helped pay bills while the county waits for a July 1 tax billing to bring in the bulk of operating money for this year’s $26.8 million budget. Almost $6 million will be borrowed from general fund reserves to meet cash flow needs until August, he said.

“If we didn’t have a reserve I don’t know where we’d be,” Bacon said. Some counties with fewer resources have had to borrow money to cover expenses until tax collection time.

Tax revenue this year is not expected to replenish all the money taken for the reserve account, he said.

“Our guess is we’re going to run $1 million in the hole,” Bacon said.

As money drains out of the revenue-sharing replacement fund and general fund reserves decline, there will be less interest earned from money still in the bank. Last year’s surplus was fed in part by $992,000 in interest income.

Officials in Lansing are also looking at ways to use reserves held by county and local governments to help patch up state government deficits. The state has a projected shortfall of $1.6 billion in the budget year that begins Oct. 1.

Bacon noted there is talk in Lansing of requiring counties to use their revenue-sharing replacement funds to make up for recent cuts in liquor tax payments to substance abuse programs. Lenawee County lost about $270,000 in liquor tax income.

“It looks like they may be coming up with other ways to take county reserves,” he said. “It’s not a good situation.”

When the revenue-sharing replacement fund is gone, he said, there is only a promise by the state government to rely on. Lansing has pledged to resume revenue sharing with counties as their replacement funds dry up, Bacon said, but he has no confidence it will happen.

“That’s D-Day. If the state doesn’t come through with that I don’t know what’s going to happen,” he said. “With the state of Michigan’s economy, asking for a tax increase is a hard sell, to say the least.”

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